UPDATE 1-Iron ore at five-year low, set for worst month since May

SINGAPORE, Sept 30 (Reuters) - Iron ore is on track to end September with its biggest monthly loss since May after falling to its lowest since 2009 in a rout that traders say looks likely to continue after a week-long holiday in top consumer China.

Abundant supply of iron ore has hit prices hard as top global miners, looking to squeeze out high-cost producers, lifted output at a time when Chinese steel demand was slowing. The steelmaking raw material has fallen more than 42 percent this year and is on course for its third quarterly decline.

There was limited trading activity in China ahead of the National Day holiday that starts on Wednesday, traders said.

“Most deals have been done yesterday and the days before, and other traders have really been shying away from the market in the past two months,” said an iron ore trader in China’s eastern Shandong province.

“Many traders are keeping low stocks because they don’t think the price can find any strong support right now, given the weak real estate market in China,” said the trader, who sees iron ore touching $70 in October.

Ore for immediate delivery to China .IO62-CNI=SI fell 1.2 percent on Monday to $77.70 a tonne, its lowest since September 2009, according to data compiled by The Steel Index.

The price of the raw material, which is the top revenue earner for global miners Vale and Rio Tinto, has slumped nearly 12 percent this month and 17 percent in the third quarter.

Shares of Japanese trading firm Sumitomo Corp slumped 12 percent on Tuesday after it slashed its annual profit forecast by 96 percent partly due to sharp declines in iron ore prices which delayed the expansion of a Brazilian project.

A cooling property sector has been a major drag on China’s economy this year, with economists saying Beijing may need to launch more stimulus measures if the government is to meet its 2014 growth target of around 7.5 percent.

Activity in China’s factory sector showed signs of steadying in September as export orders climbed, according to a private survey, easing fears of a hard landing but pointing to a still sluggish economy facing considerable risks.

The HSBC/Markit Manufacturing Purchasing Managers’ Index stood at 50.2 in September, unchanged from the August reading, which was a three-month low, but lower than the preliminary 50.5.

Chinese iron ore futures rose modestly after sharp losses on Monday. Iron ore for January delivery on the Dalian Commodity Exchange edged up 0.7 percent to close at 551 yuan($90) per tonne after Monday’s 3 percent drop.

The most traded January rebar contract on the Shanghai Futures Exchange closed 0.4 percent lower at 2,532 yuan a tonne, adding to a more than 2 percent decline in the previous session.